Cepheid (CPHD) reported adjusted breakeven earnings per share (EPS) in the fourth quarter of 2014, which compared favorably with the Zacks Consensus Estimate of a loss of 14 cents. The bottom line also showed an improvement from the year-ago quarter's adjusted loss of 8 cents.
Including one-time items, the company reported a loss of 34 cents per share, representing a dismal 126.7% deterioration from the prior-year quarter's equivalent number.
For full year 2014, the company incurred an adjusted loss of 26 cents per share, 50% narrower than the Zacks Consensus Estimate of a loss of 52 cents. The bottom line was also down a whopping 73.3% from the year-ago loss of 15 cents.
Revenues in Detail
Cepheid experienced a solid 16.1% year-over-year growth in revenues of $131.5 million in the fourth quarter. The top line also beat the Zacks Consensus Estimate of $125 million and exceeded the company's guidance of $122–$126 million.
The year-over-year growth in revenues is primarily attributable to the strong performance of the company's Commercial Clinical business, which delivered impressive growth of 26%. Also, the slightly stronger-than-expected revenues delivered by the Non-Clinical business contributed to the top-line growth in the quarter. However, the weaker than expected performance delivered by High Burden Developing Country (HBDC) systems partially neutralized these positives.
For the full year, Cepheid reported revenues of $470.1 million, which reflected a year-over-year improvement of 17.2% and steered ahead of the Zacks Consensus Estimate of $464 million.
Segments in Detail
The Clinical segment which was up 21% year over year to $122.2 million, contributed approximately 92.9% to total revenue in the fourth quarter of 2014. For full year 2015, Cepheid expects Commercial Clinical revenues (which drive the clinical segment as a whole) in the range of $426–$438 million, representing an annualized growth of 20–23%.
Cepheid's Non-Clinical & Other business revenues declined 24.4% year over year to $9.3 million. The company expects non-Clinical business revenues to decline to approximately $17 million by roughly $12 million in 2015.
During the reported quarter, Cepheid installed 261 GeneXpert systems in its commercial Clinical business and another 211 GeneXpert systems as part of its HBDC program. The total count of GeneXpert systems placed worldwide, scales 8,025 as of Dec 31, 2014.
Operational Update
Cepheid's adjusted gross margin (considering stock-based compensation expense as a regular spending)improved a massive 610 basis points (bps) year over year to 55.3% in the fourth quarter. This reflects the company's consistent progress with regard to margin improvement initiatives undertaken within its operational segments as well as benefits from a lower HBDC mix. Adjusted cost of goods sold climbed 2.1% to $58.7 million.
In the reported quarter, adjusted operating expenses amounted to $68.1 million, up 17.6% year over year. However, adjusted operating income for Cepheid was $4.7 million in the reported quarter, a massive increase from the prior-year quarter's adjusted operating loss of $2.1 million.
Financial Position
Cepheid exited 2014 with cash and cash equivalents and short-term investments of $293.4 million compared with $74.9 million as on Dec 31, 2013. As of Dec 31, 2014, Cepheid generated $9.2 million in cash flow from operating activities compared to $15 million cash flow in 2013. Capital expenditure declined 1.2% year over year to $47 million.
Outlook
Cepheid has provided its financial guidance for 2015. The company expects total revenue in the range of $538–$553 million and a loss of 51–55 cents per share in 2015. Considering stock-based compensation as a regular expense, the company expects adjusted loss in the range of 29–33 cents per share.
The current 2015 Zacks Consensus Estimate for revenues of $541 million lies within the company's guided range. On the bottom-line front, the current Zacks Consensus Estimate for the year is pegged at a loss of 35 cents, ahead of the guided band.
Cepheid also provided its guidance for the first quarter of 2015. The company expects total revenue in the range of $123–$126 million. Meanwhile, bottom-line estimates range from a loss of a penny to an income of a penny for the ongoing first quarter.
The Zacks Consensus Estimate for first-quarter revenues of $126 million coincides with the upper limit of the company's guided range. The Zacks Consensus Estimate for EPS is pegged at a loss of 13 cents, ahead of the guided range.
Our Take
We are impressed with Cepheid's stronger-than-expected fourth-quarter as well as full year 2014 results. Interestingly, Cepheid witnessed a record number of GeneXpert system placements in the year. The company reported 773 commercial placements during 2014, reflecting a strong North American performance, and 544 international placements, which far exceeded Cepheid's previous record of 383 international placements in 2013.
At present, with more than 8,000 GeneXpert system placements and expected revenues approaching $0.5 billion a year, Cepheid targets at expanding its installed base, presence in new market segments and its investment in new technologies such as the Honeycomb High-Level Multiplex system. This indicates Cepheid's consistent efforts toward improvisation of new, innovative tests which bolster our confidence in the stock's long-term potential.
Although the Non-clinical business suffered a decline in the fourth quarter, the extent of weakness in this business is expected to reduce in the coming year. This offers a sign of encouragement for the company.
Zacks Rank
Currently, Cepheid carries a Zacks Rank #3 (Hold).
Some better-ranked medical instrument stocks are Inogen, Inc. (INGN), Edwards Lifesciences Corp. (EW) and ABIOMED, Inc. (ABMD). While Inogen sports a Zacks Rank #1 (Strong Buy), Edwards Lifesciences and ABIOMED carry a Zacks Rank #2 (Buy).
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